For John Allison And Home Bancshares, Fifth Time’s The Charm

Tenacity and perseverance are two traits that successful entrepreneurs usually have in spades. Home Bancshares chairman John Allison certainly does and his bank’s acquisition last week of Jonesboro-based Liberty Bancshares for $280 million proves the point.

In an exclusive interview with Talk Business, Allison said he had been after Liberty Bank for “only about 10 years.” Allison revealed that he made five offers to Liberty’s chairman and Allison’s close friend, Wallace Fowler. The first offer was made in August 2006, Allison said, and after the multiple other attempts, the deal finally came together this year.

Allison said it is becoming increasingly difficult for private banks to succeed with the additional regulations from Dodd-Frank and a bruised economy still on the mend.

“I didn’t buy it based on what it’s earning, I bought it based on what it can earn,” Allison confides. “The fairness is I think I paid a little too much and Wallace thinks I paid a little too little.”

Allison said there will be some expense savings through consolidation, but he expects attrition to account for much of that. He also may add another lieutenant to his management team to handle oversight of the Liberty properties.

“That decision hasn’t been made yet. We’re operating with three regional presidents, which Randy Sims is the CEO and the leader of the group. We’ll probably add a fourth regional [president]. You’ll probably hear that coming in the next week or 10 days. It will be a fourth regional over the Liberty operations,” Allison said.

ROA & TCE Allison is proud of the return on assets (ROA) he has been able to generate in his banking operations in Arkansas, Alabama and Florida. He knows the numbers like his date of birth or Social Security number.

“We’ve got our Florida banks doing a 111 ROA now,” he says. “That’s about what they ran in the heyday, but we think, our minimum standard coming from the old First Commercial days is 150 ROA. Our combined companies run a 170. I’ve got my Florida Keys operation running at 198, I’ve got Alabama running at 168, Florida’s running overall at 111, and Arkansas’ running at 230.”

Allison said Liberty is running at 80, “but it ought to double” as his bank management team incorporates the new branches into its fold. ROA is basically a company’s net income divided by its assets and is often used in the banking business as a standard for financial health. Another key metric for the Liberty deal and Home Bancshares’ financial reputation on Wall Street is tangible common equity (TCE).

TCE evaluates how a bank might deal with potential losses. It is calculated by subtracting intangible assets, goodwill and preferred equity from the company’s book value. Allison said TCE was crucial in gauging Wall Street’s reaction to the Liberty deal.

“The street liked the deal,” Allison said, noting that Home Bancshares stock was lifted about 15% last week. “The real key to this deal was: how much dilution to tangible common equity are you going to take? And, we’ve got an 18-month earn-back on our dilution to tangible common equity. That’s really what they’re looking at.”

“There’s a lot of deals being done out there with 5, 6, 7 years to get it back. This is less than 18 months to recover,” he added.

Now sitting at $7.1 billion in assets, Allison aims to take Home Bancshares to around the $8 billion mark before re-assessing his next big move. Hitting the $8 billion asset milestone may not happen with simple, organic growth. And, he eventually wants to go far beyond a $10 billion threshold to “say $14 billion” to spread expenses of steeped-up regulations from the Dodd-Frank law over a wider swath of bank assets if Home Bancshares continues on its growth trajectory.

“I don’t know if it will all be organic growth. We’ve been on a shopping spree in Florida and once we get this one under out belt, 6-8-10 months down the road, we’ll probably go back shopping in Florida.”

FLORIDA

Florida has been a gold mine for Allison and Home Bancshares in recent years. Equipped with capital, the Arkansas financial institution has acquired eight different banks throughout the Sunshine State, and as Allison hinted, he’s not done yet.

Florida’s economy can boom and bust whereas Arkansas’ tends to stay slow and steady. Since 2008, Home Bancshares has nabbed several struggling Florida properties in FDIC-assisted deals, which are usually pennies on the dollar.

Allison said the Florida economy is already rebounding and turning those bank acquisitions into a healthy investment.

“It [The Florida economy] has come back extremely strong. They say, ‘timing is everything’ and our timing may have been perfect in that market,” Allison said. He notes that housing is rebounding and an oversupply of condos is gone. Prices are moving up, he says.

So after the Liberty acquisition is absorbed, Florida probably offers the most attractive next buy.

“We had opportunities inside about 10 days that were about $14 billion worth of opportunities. We had to back up from it and look at it and determine which ones made the most sense for Home Bancshares. So a lot of those opportunities are still out there if we want to go to them,” Allison said.

Could there be any opportunities in south Arkansas, where Liberty has virtually no footprint? Allison said there could be a couple of opportunities, but “my friends at Simmons seem to have most of that covered pretty well.” You can watch his full interview below.